Anger and confusion as crypto traders lose thousands in ‘flash crash’ on $54 billion exchange

A “flash crash” on the world’s biggest cryptocurrency exchange has left customers demanding answers and refunds, with many claiming to have lost thousands of dollars.

The price of cryptocurrencies NEO, OMG, and ETP crashed as much as 90% in minutes on the Bitfinex exchange on Wednesday before quickly bouncing back to former levels.

The price crash led Bitfinex, the world’s largest cryptocurrency exchange by daily volume, to close the positions of many traders who had placed leveraged bets on these digital currencies. Leveraged trading involves borrowing money to increase exposure. It can lead to outsized gains compared to how much you deposit, but also outsized losses.

Customers have taken to Twitter, RedditMedium, and messaging app Telegram to protest Bitfinex’s treatment of those who use margin trading on the platform.

They claim that Bitfinex’s platform was hit by delays and technical issues at the time of the “flash crash,” leaving many powerless to respond. Traders are also upset that the crash only appeared to happen on Bitfinex and are suspicious of what caused it. And many say stop losses — automated sell orders meant to activate once an asset price reaches a certain floor and therefore limit losses — were executed at prices well below those set by users.

Bitfinex argues that it was functioning as normal and the company’s terms of service include provisions to close out positions once leverage ratios fall below 15%. The company puts the “flash crash” down to the volatility of cryptocurrency markets.

The spat highlights the high-risk nature of cryptocurrencies, which have attracted huge interest and ballooned to more than $300 billion in 2017 but are subject to wild price swings and are largely unregulated. It also comes at a time when British Virgin Island-registered Bitfinex, which had trading volumes of $54 billion last month, is facing increasing public scrutiny.

‘Panic across multiple markets’

Brett Kruger, a Bitfinex user affected by the “flash crash”, told Business Insider he is unhappy with Bitfinex because he claims the website was “lagging, unresponsive” at the time of the crash. He said he was also repeatedly logged out of the website, blaming recent DDoS attacks. Bitfinex announced last Sunday that it had been hit by a distributed denial of service (DDoS) attack, a malicious attack meant to bring down the service.

Kruger said: “All of this is very time consuming for a person that called a long in a margin trade, is watching the market drop, and is trying to get out to take minimal losses.” He estimates he lost $10,000 in the crash.

“If the market does indeed crash like this, should there not be given a time before the user gets liquidated? Especially if the system is unstable, laggy and unresponsive,” he said. “A 15-minute max 90% drop to a 90% pump should certainly not liquidate a person. If the price has been at the 90% low for 30 minute — sure I can understand that. But this is another prevention method which could have been in place.”image (2)The flash crash in the price of NEO on the Bitfinex exchange.Screenshot

In most regulated markets stop-losses are triggered as soon as a certain level is breached, regardless of how long the level is breached for. However, some traders claim that the activation of their stop-losses appears to have lagged, triggering only after the price had recovered.

A spokesperson for Bitfinex told Business Insider in an email: “On November 29, 2017, we saw similar movements across multiple markets. This was not a sudden drop in a single market; it was a panic across multiple markets.”

“In a situation like this, we must liquidate customers’ peer-to-peer financed positions. If we do not, there is a serious risk of a large group of financed traders losing more than can be covered by the collateral held.”

One user on Telegram claims he has been left $35,000 in debt to Bitfinex after losses exceeded the deposit he had put up for margin trading.

‘Warm words would not help’

Kruger wants Bitfinex to issue a public statement on the incident, refund users who were hit by the incident, and calls for “a statement on what measures are going to be taken to prevent something like this” in future.

Kruger is one of five people who contacted Business Insider to protest the incident. All demanded similar action from Bitfinex and several pointed to the example of GDAX, an exchange operated by Coinbase, which agreed to reimburse customers hit by a similar “flash crash” for Ethereum in June…

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